Modi Sarkar’s New Focus: Making Corporate Governance of Global Standard by introduction of Companies (Amendment) Ordinance, 2019

Modi Sarkar’s New Focus: Making the Corporate Governance of Global Standard by introduction of Companies (Amendment) Ordinance, 2019

The attention is invited to the Companies, Directors, principal officers, Company Secretary, Chartered Accountants, Auditors, stakeholders and Shareholders to review the recently promulgated Companies (Amendment) Ordinance 2019 which are at present applicable and may not be in the knowledge of such stakeholders in many cases. In our opinion, these penal provisions are very punitive and aggressive in nature and hence to be followed carefully. We understand that this may reduce the corporate culture of the country as many people may opt for doing business with non-corporate enties eg Partnership firm etc. One side this may enhance the corporate image of the company and country worldwide but on the other side, it may distort the basic business comfort of the business entities. Such high penalties may break the backbone of the business structure of the country. The summery of the ordinance is as follows.

1. Commencement Certificate is mandatory now to be obtain within 6 months of Incorporation of the company without which, it cannot commence its business activity or borrow money.

2. The Registrar of Companies can strike off a company if the address of Regd Office is bogus or incomplete/improper address.

3. In the cases where Conversion of Public Ltd Company to Private Limited Companies and related matters has been shifted now from National Company Law Tribunal to Regional Directorate (RD).

4. Company cannot issue the shares at discount. The heavy penalty shall be imposed on violation.  The company will also be liable to refund the money received with interest at 12% per annum from the date of issue of the shares.

5. In the cases of alteration of Authorized Capital, the same is to be intimated to Registrar of Companies within 30 days. In case of the default, the penalty of Rs. 1,000/- for every day or Rs. 5 Lakh whichever is less.

6. The time limit has reduced for Creation of charge filing with ROC from 300 days to 60 days. This is a very important change and taken care.

7. Wrong statement/ information in filing Charge forms with ROC may lead to misrepresentation and jail. This clause may impact the CFO, directors, officers, auditors and principal officers etc.

8. Annual Return should be filed within 60 days from AGM, failure to this, penalty of 100 per day to Company + directors max 5 Lakh apart from ROC delay charges is applicable.

9. Provision of Penalty of 5 Lakh to Company Secretary on certifying the wrong Annual Return. Here lot of things to be taken care of by the company secretary.

10. Explanatory statement to be given along with the Notice of General Meeting and it must contain all details as required by Companies Act 2013. In case there is no detail or short /misleading details then there is a penalty for the Company, its directors as well as key management persons. The amount of penalty is Rs. 50,000/-

11. Now the filing of resolutions with Registrar should be very careful and in time. It would be very costly in case of delay now. The penalty for default has been increased substantially and it is Rs. 500 every day subject to maximum to Rs. 25 Lakh

12. Similarly the filing of Balance sheet with ROC must be done within the time limit as mentioned in the companies act otherwise there is a heavy penalty for for Company and Directors both. The penalty is Rs. 100 per day subject to maximum 1 lakh to Company and each Director.

13. Resignation of Auditor must be filed by the resigning Auditor within 30 days, and failure to which the resigning Auditor is liable for penalty of 50,000 in addition to Rs. 500 per day.

14. A director cannot become director in more than 20 companies now. If he continues to do so, he becomes disqualified now to be eligible as director of the company.

15. Appointment of Company Secretary on employment in pursuance of Companies Act, 2013 (Pvt Co having paid-up capital 5 cr & above) is mandatory. Default of this section is also very costly now and penalty increased substantially.

16. ROC may strike off a company if subscribers have not paid initial share capital after incorporation of a Company within 6 months.

17. Declaration of beneficial ownership:If a person holds beneficial interest of at least 25% shares in a company or exercises significant influence or control over the company, he is required to make a declaration of his interest. Under the Act, failure to declare this interest is punishable with a fine between one lakh rupees and ten lakh rupees, along with a continuing fine for every day of default.  The Ordinance provides that such person may either be fined, or imprisoned for up to one year, or both.

18. Now a regional director can compound (settle) offences with a penalty of up to five lakh rupees. The Ordinance increases this ceiling to Rs 25 lakh.

The Highlights of the Companies (Amendment) Ordinance, 2019 which was promulgated on January 12, 2019. It repeals and replaces the Companies (Amendment) Ordinance, 2018 promulgated on November 2, 2018.  The 2019 Ordinance amends several provisions in the Companies Act, 2013 relating to penalties, among others.  Note that the Companies (Amendment) Bill, 2018 (to replace the 2018 Ordinance) was passed by Lok Sabha on January 4, 2019, and is currently pending in Rajya Sabha.